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Caa 203: Auditing I Question Paper
Caa 203: Auditing I
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
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UNIVERSITY EXAMINATIONS: 2008/2009
SECOND YEAR STAGE III EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 203: AUDITING I
DATE: AUGUST 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
a) The external auditor of a company uses the system of internal control to determine the nature,
extent and timing of his audit tests
Required
What value does the client obtain from external auditor with respect to internal controls?
Explain how the auditor provides this value (10 Marks)
b) Write brief notes on the following
i. Final or Complete audit
ii. Interim audit
iii. Continuous audit (9 Marks)
c) State and explain four circumstances under which the Companies Act require the auditor to
qualify their report (8 Marks)
d) Briefly describe audit controlling (3 Marks)
QUESTION TWO
During the course of the audit, the auditor may need to consider audit evidence in the form of
reports opinion, valuation or statement from specialists
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Required:
a) List four examples of situations where the auditor may wish to rely on the report of a
specialist (10 Marks)
b) Describe the principles or factors which the auditor should consider when placing
reliance on audit evidence provided by specialist (10 Marks)
QUESTION THREE
Three important aspect of an audit which must be planned for well in advance are:-
i.) Audit staffing requirement
ii.) The timing of the audit visits
iii.) Clients use of computerized systems
Required
a) Explain the importance of each of the above matters for the successful conduct and completion
of the audit. (5 Marks)
b) Identify and list in point form the input to the planning processing respect to each of the three
items stated above. (5 Marks)
Sally Chung has been assigned to the audit of a new client: Ace Pty Ltd. Ace is a small company
operating in the consumer electronics industry. As part of her responsibilities Sally has been asked
to prepare an overall plan for the audit. Having only participated in the planning process before,
Sally is unsure exactly what this will involve and has asked you to explain to her the steps she will
need to undertake in order to develop the audit plan.
Required:
Provide Sally with a brief description of each of the steps she should undertake in order to plan for
the audit. [10 Marks]
QUESTION FOUR
You have obtained employment in the accounting firm of Dickens and Partners as an audit assistant.
You have heard that the firm is not very modern in its approach. On your first day at work, Mr.
Dickens, an audit partner, calls you into his office and hands you a copy of Auditing: A Practical
Manual for Auditors by Lawrence Dicksee, published by Gee and Co. of London in 1892. The
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partner proudly claims, ‘This is the Bible of Auditing’. You open the book (after blowing the dust off
the cover) and read the following statement on page 7.
… The detection of fraud is a most important portion of the auditor’s duties. Auditors, therefore,
should assiduously cultivate this branch of their activities.
You discussed this with your former classmate, Michael Fung, who was recruited into one of the Big
Four accounting firms as a trainee in its business advisory service section. Michael chuckled and said,
‘We don’t do that old fashioned stuff.’
Required:
i.) Discuss the current changes in the objectives of auditing, identifying the expanded roles of
professional accountants and the reasons attributable to the changes. [10 Marks]
ii.) Discuss the different types of errors and fraud that can be found within such an
organization (10 Marks)
QUESTION FIVE
Consider the following independent situations, all of which apply to audits of entities for the year
ending 31 December 20X4:
i.) Slipway Limited, a listed company, has been experiencing declining sales over the last 2
years. Cost cutting has proved difficult due to the high level of imported machinery used
in Slipway’s operations and consequently margins have been falling. While the bankers
are presently happy to continue providing Slipway with loan facilities, they do expect to
see improved results in the next financial report. Articles about Slipway’s expected
financial results appearing in recent press reports all had quite a pessimistic tone.
ii.) Discount Foods Limited is a large superMarket chain with offices in all capital cities
around Australia. Until 30 June 20X4 data processing relating to payroll transactions will
be carried out in each capital city by an independent computer service bureau.
iii.) Getaway Pty. Limited is a long established firm which has been operating a boutique hotel
in the Blue Mountains for over 20 years. During this time, it has adopted a conservative
business strategy that has seen it produce adequate, though slightly unimpressive, results.
A new CEO has been appointed to run the firm from 1 September 20X4. He has already
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released his plans for renovating the hotel, despite not officially serving as CEO yet. You
have also heard him discuss the implementation of a new Marketing strategy to boost
occupancy rates.
iv.) Angora Pty. Limited is a small primary producer specializing in the production of angora
wool. Angora’s recent display at a trade show has seen orders flood in from overseas
buyers. The accountant, Michael, has done his best to satisfy the orders as quickly as
possible while maintaining the appropriate (foreign currency) accounting records.
However, from some of the questions he has been asking you, you suspect he is out of
his depth.
v.) Kings Pty. Limited has been manufacturing uniforms for the Australian Market for the
last 40 years. The government’s recent tariff reduction policy has placed Kings in direct
competition with cheaper uniforms manufactured overseas. In a bid to retain Market
share, Kings has been selling part of its school uniform range at less than cost. However,
overall profit figures remain buoyant.
Required:
For each of the above independent situations describe the overall impact on audit risk and
identify the specific component(s) of audit risk affected. [20 Marks]
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